Paying Your Taxes with a Credit Card
The tax day is not far away. You will have to file your tax return and pay any taxes due by the April 15 this year. It’s been two years already since consumers were allowed to pay their taxes with a credit card. Many find it convenient and easy but not always a financially prudent thing to do.
Consider the pros and cons of using a credit card to pay taxes before you pay them with a credit card. And look out for other available options.
Advantages of paying taxes with a credit card
No worries about being in debt to the IRS or about late payment penalty fees. You just pay with a credit card your taxes and then make payments on your credit card until the balance is gone.
Having a credit card with rewards program may bring you reward points for paying taxes with a credit card. Check with your credit card issuer whether tax payments will earn rewards.
A balance transfer credit card may give you a chance to pay all your debts off during a zero interest introductory period. You can pay the taxes with your current card and then transfer all your balance to a new balance transfer card. You will be able to focus on making one payment each month if you consolidate your debts into a single account.
Disadvantages of paying taxes with a credit card
Credit cards have interest rates which you have to consider when charging taxes to your credit card. These interest rates are usually higher than what can be offered with a payment plan through the IRS. If you have a new credit card with 0% interest intro period, then make sure you will be able to pay off your debt before the intro period ends.
You will be charged an additional fee for paying taxes with a credit card. Credit card charges are processed by a third party provider, not the IRS. These companies charge a processing fee ranging from 2% to 4% of your tax bill.
Your credit score can be affected because you increase your credit card balance. By increasing your card balance you increase your debt utilization ratio. That can hurt your credit score if the debt remains high for a long time.
Other tax payment options
Debit card. You won’t earn rewards and you still need to pay a processing fee, but you will save a lot of money in interest payments. Paying with a debit card won’t affect your credit score.
Installment plan with the IRS. You will have time to pay off your debts on terms that suit your budget and bill. When you pay with the IRS your credit score won’t be affected as well.
Loan with low interest rates. When you use the loan, you will make payments to the credit card company or a bank, not the IRS. At first this may hurt your credit score, but might actually help your credit score over time providing you manage loan right.
Think over all your options before you pay taxes with a credit card.
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